Systems and methods for determining an earnings portion of a distribution from a 529 plan

ABSTRACT

A method for determining an earnings portion of a distribution from a 529 plan. The method includes receiving information associated with a plurality of 529 plan accounts, identifying related 529 plan accounts, aggregating the information for related 529 plan accounts, and determining an earnings portion of a distribution from at least one of the 529 plan accounts.

CROSS-REFERENCE TO RELATED APPLICATIONS/PRIORITY CLAIM

This application is a continuation of co-pending U.S. patent applicationSer. No. 13/012,488 filed on Jan. 24, 2011, which is a continuation ofU.S. patent application Ser. No. 12/797,358 filed on Jun. 9, 2010, nowissued as U.S. Pat. No. 7,877,310, which is a continuation of U.S.patent application Ser. No. 11/710,685 filed on Feb. 26, 2007, nowissued as U.S. Pat. No. 7,756,771, which is a continuation of U.S.patent application Ser. No. 11/477,170 filed on Jun. 28, 2006, nowabandoned, which is a continuation of U.S. patent application Ser. No.11/255,476 filed on Oct. 21, 2005, now abandoned, which claims priorityto U.S. Provisional Application No. 60/621,021 filed Oct. 21, 2004. Theforegoing applications are hereby incorporated by reference in theirentirety into the present application.

BACKGROUND

This application discloses an invention that is related, generally andin various embodiments, to systems and methods for determining anearnings portion of a distribution from a 529 plan.

With the increased recognition of the importance of higher education,more and more people are determined to attend college after graduatingfrom high school. Unfortunately, the cost of attending college continuesto rise. To help make attending college more affordable, many stateshave enacted legislation to establish financial products commonly knownas 529 plans. Money invested in a 529 plan accumulates on a tax-deferredbasis, thereby making it an attractive investment vehicle for meetingfuture college education expenses. Generally, for a given state, thestate awards a mandate to a program manager to administer the 529 planauthorized by the state. The program manager may subsequently authorizeother providers (e.g., mutual fund companies) to run their own 529 plansunder the program manger's mandate. Each account in a 529 plan of agiven state has an owner and a beneficiary associated therewith. Thebeneficiary can be the beneficiary of multiple accounts, and eachaccount may have a different owner.

Generally, each state sets a maximum limit associated with a 529 planaccount beneficiary, and the administrator of each 529 plan isresponsible for complying with the state's maximum limit. For some 529plans, the maximum limit concerns a total fair market value for 529 planaccounts having the same beneficiary. For other 529 plans, the maximumlimit concerns a total value of contributions made to 529 plan accountshaving the same beneficiary.

Internal Revenue Service regulations require 529 plans determine anearnings portion of each distribution made therefrom as of the date ofthe distribution. When the distribution is for a 529 plan account thathas the same owner/beneficiary combination as one or more additional 529plan accounts, each of the 529 plan accounts having the sameowner/beneficiary combination need to be aggregated in order todetermine the correct earnings portion of the distribution. There may beany number of accounts that need to be aggregated.

From the foregoing, it is apparent that the regulatory burden imposed onadministrators of 529 plans can be significant. Unfortunately, manyadministrators are not currently able to meet the various requirementsin a uniform, cost-effective manner.

SUMMARY

In one general respect, this application discloses embodiments of amethod for determining an earnings portion of a distribution from a 529plan. According to various embodiments, the method includes receivinginformation associated with a plurality of 529 plan accounts,identifying related 529 plan accounts, aggregating the information forrelated 529 plan accounts, and determining an earnings portion of adistribution from at least one of the 529 plan accounts.

In another general respect, this application discloses embodiments of asystem for determining an earnings portion of a distribution from a 529plan. According to various embodiments, the system includes a databasefor storing information associated with a plurality of 529 planaccounts, and a distribution module in communication with the database.The distribution module is for determining an earnings portion of adistribution amount from at least one of the 529 plan accounts.

Aspects of the disclosed invention may be implemented by a computersystem and/or by a computer program stored on a computer readablemedium. The computer readable medium may comprise a disk, a device,and/or a propagated signal.

Other features and advantages will be apparent from the followingdescription, including the drawings, and from the claims.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 illustrates various embodiments of a method for determining anearnings portion of a distribution from a 529 plan; and

FIG. 2 illustrates various embodiments of a system for determining anearnings portion of a distribution from a 529 plan.

DETAILED DESCRIPTION

FIG. 1 illustrates various embodiments of a method for determining anearnings portion from a distribution from a 529 plan. Prior to theimplementation of the method illustrated in FIG. 1, starting positionsmay be provided by various 529 plan providers for each 529 plan account.The starting positions may be defined by the fair market value (FMV) ofthe account, the life-to-date contributions (LTD Cont) to the account,and the life-to-date return of investment (LTD ROI). For ease ofdescription purposes only, the method will be described in terms of a529 plan for a given state. However, one skilled in the art will readilyrecognize that the method can be implemented for any number of 529 plansfor any number of states, either sequentially or concurrently.

The process illustrated in FIG. 1 begins at block 10, where a serviceprovider (e.g., PFPC) receives information associated with a pluralityof 529 plan accounts. The information may be received directly orindirectly from a 529 plan provider, and one skilled in the art willappreciate that the service provider may receive such information fromany number of 529 plan providers for any number of states. Theinformation may be received at a computing device associated with theservice provider and stored in a database that is in communication withthe computing device. The information may include price, position andactivity information for each 529 plan account in the 529 plan. Theinformation may also include a state plan ID, an owner ID and abeneficiary ID for each 529 plan account. According to variousembodiments, the owner ID may be the owner's social security number andthe beneficiary ID may be the beneficiary's social security number. Theprocess described at block 10 may occur on a periodic basis such as, forexample, on a daily basis.

From block 10, the process advances to block 12, where related 529 planaccounts are identified. Identifying the related 529 plan accountsincludes identifying 529 plan accounts having a common beneficiary andidentifying 529 plan accounts having a common owner/beneficiarycombination. The process described at block 12 may be repeated for anynumber of 529 plans for any number of states, either sequentially orconcurrently. According to various embodiments, such 529 plan accountsmay be designated in a manner that facilitates the grouping together ofthe accounts for aggregation purposes. The identification processdescribed at block 12 may occur on a periodic basis such as, forexample, on a daily basis.

From block 12, the process advances to block 14, where it is determinedwhether any new contributions have been made to any of the 529 planaccounts that collectively comprise the 529 plan. The determination ismade based on a comparison of the information received at block 10 andinformation stored at the database described hereinbefore. The processdescribed at block 14 may be repeated for any number of 529 plans forany number of states, either sequentially or concurrently.

From block 14, the process advances to block 16 or to block 24. If it isdetermined that a new contribution has not been made to any of the 529plan accounts, the process advances from block 14 to block 16, where itis determined whether a new distribution has occurred from any of the529 plan accounts. The determination is made based on a comparison ofthe information received at block 10 and information stored at thedatabase described hereinbefore. The process described at block 16 maybe repeated for any number of 529 plans for any number of states, eithersequentially or concurrently.

From block 16, the process advances to block 18 or block 30. If it isdetermined that a new distribution from any of the 529 plan accounts hasnot occurred, the process advances from block 16 to block 18, where theinformation received at block 10 is aggregated for the related 529 planaccounts. The information may be aggregated for 529 plan accounts havinga common beneficiary and for 529 plan accounts having a commonowner/beneficiary combination. The process described at block 18 may berepeated for any number of 529 plans for any number of states, eithersequentially or concurrently.

From block 18, the process advances to block 20, where it is determined,for each 529 plan account beneficiary, whether a maximum limitassociated with the respective 529 plan account beneficiary has beenreached. The maximum limit is generally set forth in the 529 plan of thegiven state, and different states may set different maximum limits.According to various embodiments, the maximum limit may be a maximumaggregate market value for all 529 plan accounts having a commonbeneficiary. According to other embodiments, the maximum limit may be amaximum aggregate total for life-to-date contributions for all 529 planshaving a common beneficiary. The process described at block 20 may berepeated for any number of 529 plans for any number of states, eithersequentially or concurrently. If a beneficiary associated with aparticular 529 plan account is not associated with any other 529 planaccounts in the various 529 plans of the given state, the aggregatedmarket value of the particular 529 plan account is the same as themarket value of the particular 529 plan account. Similarly, theaggregate total for life-to-date contributions for the particular 529plan account is the same as the life-to-date contributions for theparticular 529 plan account.

From block 20, the process advances to block 22 or to block 32. For each529 plan account beneficiary, if the aggregated market value of the 529account or accounts associated with the given beneficiary does notexceed the maximum allowable aggregated market value, the processadvances to block 22, where the updated 529 plan account information istransmitted to the appropriate plan provider. The process described atblock 20 may be repeated for any number of 529 plans in any number ofstates, either sequentially or concurrently.

Returning to block 14, if it is determined that a new contribution hasbeen made to any of the 529 plan accounts, the process advances fromblock 14 to block 24, where it is determined whether the newcontribution is a UGMA/UTMA contribution. The process described at block24 may be repeated for any number of 529 plans for any number of states,either sequentially or concurrently.

From block 24, the process advances to block 26 or to block 28. If it isdetermined that the new contribution is not a UGMA/UTMA contribution,the process advances from block 24 to block 26, where the year-to-datecontributions and the life-to-date contributions are determined for each529 plan account. The updated values of the year-to-date contributionsand the life-to-date contributions may be stored in the databasedescribed hereinbefore. The process described at block 26 may berepeated for any number of new contributions, either sequentially orconcurrently.

From block 26, the process advances to block 18, where the updatedvalues of the year-to-life contributions and the life-to-datecontributions, and the information received at block 10, is aggregatedfor the related 529 plan accounts. From block 18, the process advancesto block 20, where the process advances as described hereinbefore.

Returning to block 24, if it is determined that the new contribution isa UGMA/UTMA contribution, the process advances from block 24 to block28, where the 529 plan account is designated as a UGMA/UTMA account.According to various embodiments, such accounts are designated in amanner that facilitates the separation of UGMA and UTMA accounts fromnon-UGMA/UTMA accounts. The designation of the UGMA/UTMA accounts allowsfor the UGMA/UTMA accounts to be aggregated separately from thenon-UGMA/UTMA accounts. The process described at block 28 may berepeated for any number of new contributions, either sequentially orconcurrently.

From block 28, the process advances to block 26, where the processadvances as described hereinbefore, except that UGMA/UTMA accounts aresubsequently aggregated separately from non-UGMA/UTMA accounts.

Returning to block 16, if it is determined that a new distribution fromany of the 529 plan accounts has occurred, the process advances fromblock 16 to block 30, where an earnings portion of the distribution isdetermined and a return of investment portion of the distribution isdetermined. As each 529 plan account has an owner/beneficiarycombination associated therewith, the distribution has anowner/beneficiary combination associated therewith. According to variousembodiments, the earnings portion is determined by multiplying thedistribution amount by an earnings ratio, where the earnings ratio isequal to the earnings divided by the aggregate market value of the 529plan accounts having the owner/beneficiary combination that isassociated with the distribution. According to various embodiments, theearnings portion may be determined by the following equation:

${{EP} = {\left( \frac{{MV} - \left( {C - {ROI}} \right)}{MV} \right) \times D}},$

where EP equals the earnings portion, MV equals an aggregate marketvalue, C equals an aggregate value of contributions, ROI equals anaggregate value of return of investment, and D equals the distributionamount. According to various embodiments, the return of investmentportion is determined by subtracting the earnings portion from thedistribution amount. The process described at block 30 may be repeatedfor any number of distributions, either sequentially or concurrently.The service provider may use the information determined at block 30 toprovide consolidated tax reporting (e.g., one tax form and one 1099Q forrelated distributions). From block 30, the process advances to block 18,where the process advances as described hereinbefore.

Returning to block 20, if it is determined that a maximum limitassociated with a 529 plan account beneficiary has been reached, theprocess advances to block 32, where each of the 529 plan accountsassociated with the 529 plan account beneficiary are appropriatelydesignated. According to various embodiments, attempts to subsequentlycontribute to any of the designated 529 plan accounts may beautomatically rejected by the various service providers. The processdescribed in block 32 may be repeated for any number of beneficiaries,either sequentially or concurrently. From block 32, the process advancesto block 22, where the process advances as described hereinbefore.

FIG. 2 illustrates a system 40 for determining an earnings portion of adistribution from a 529 plan. The system 40 may be utilized to implementthe method described hereinbefore. The system 40 includes a computingdevice 42 in communication with one or more information sources 44 via anetwork 46 having wired or wireless data pathways. Each informationsource 44 may be associated with a different 529 plan provider, and isconfigured to transmit information associated with a plurality of 529plan accounts to the computing device 42. The network 46 may be, forexample, a local area network (LAN), a metropolitan area network (MAN),a wide area network (WAN), the Internet, an Intranet, an Extranet, theWeb, a telephony network (e.g., analog, digital, wired, wireless, PSTN,ISDN, or xDSL), a radio network, a television network, a cable network,a satellite network, and/or any other wired or wireless communicationsnetwork configured to carry data. The network 46 may include one or moreelements, such as, for example, intermediate nodes, proxy servers,firewalls, routers, switches, adapters, sockets, and wired or wirelessdata pathways, configured to direct and/or deliver data.

In general, the system 40 may be structured and arranged to communicatewith the information sources 44 via the network 46 using variouscommunication protocols (e.g., HTTP, TCP/IP, UDP, WAP, WiFi, Bluetooth)and/or to operate within or in concert with one or more othercommunications systems.

The computing device 42 may be associated with a service provider, andmay comprise a database 48 and a distribution module 50. The database 48may be structured and arranged to store information that the computingdevice 42 receives from the one or more information sources 44. Thedistribution module 50 is configured for determining an earnings portionof a distribution from at least one 529 plan account and for determininga return of investment portion of the distribution. The distributionmodule 50 may also be configured for identifying related 529 planaccounts, aggregating information for related 529 plan accounts, anddetermining when a maximum limit associated with a 529 plan accountbeneficiary is reached.

The distribution module 50 may be implemented utilizing any suitablecomputer language (e.g., C, C++, Java, JavaScript, Visual Basic,VBScript, Delphi) and may be embodied permanently or temporarily in anytype of machine, component, physical or virtual equipment, storagemedium, or propagated signal capable of delivering instructions to adevice. The distribution module 50 (e.g., software application, computerprogram) may be stored on a computer-readable medium (e.g., disk,device, and/or propagated signal) such that when a computer reads themedium, the functions described herein are performed. According tovarious embodiments, the functionality of the distribution module 50 maybe implemented by more than one module. Although the computing device 42is shown as a single unit in FIG. 2 for purposes of convenience, itshould be recognized that the computing device 42 may comprise a numberof distributed computing devices, inside and/or outside theadministrative domain. For example, the computing device 42 may includea personal computer, a workstation, a laptop computer, a network-enabledpersonal digital assistant, a network-enabled mobile telephone, etc.Other examples of the computing device 42 include, but are not limitedto, a server, a microprocessor, an integrated circuit, fax machine orany other component, machine, tool, equipment, or some combinationthereof capable of responding to and executing instructions and/or usingdata.

The computing device 42 may perform the above-described actionsautomatically and may perform the actions for any number of 529 plans inany number of states, for any number of 529 plan accounts, and for anynumber of owners and beneficiaries. In order to perform the actionsdescribed hereinabove, the computing device 42 may execute a series ofinstructions. The instructions may be software code to be executed bythe computing device 42. The software code may be stored as a series ofinstructions or commands on a computer readable medium such as a randomaccess memory (RAM) and/or a read only memory (ROM), a magnetic mediumsuch as a hard-drive or a floppy disk, or an optical medium such as aCD-ROM. The software code may be written in any suitable programminglanguage using any suitable programming technique. For example, thesoftware code may be written in C using procedural programmingtechniques, or in Java or C++ using object-oriented programmingtechniques.

While several embodiments of the disclosed invention have beendescribed, it should be apparent, however, that various modifications,alterations and adaptations to those embodiments may occur to personsskilled in the art with the attainment of some or all of the advantagesof the disclosed invention. For example, some of the method stepsdescribed hereinabove with respect to FIG. 1 may be performedconcurrently or in a different order. It is therefore intended to coverall such modifications, alterations and adaptations without departingfrom the scope and spirit of the disclosed invention as defined by theappended claims.

1. A method for determining an earnings portion of a distribution from a529 plan, the method comprising: identifying, using a computing devicecomprising at least one processor, related 529 plan accounts from aplurality of 529 plan accounts; receiving, with the computing device,information associated with the plurality of 529 plan accounts,including receiving for each 529 plan account: a state planidentification number, an owner identification number, and a beneficiaryidentification number; aggregating the information for related 529 planaccounts; and determining, with the computing device, an earningsportion (EP) of a distribution from at least one of the related 529 planaccounts as:${{EP} = {\left( \frac{{MV} - \left( {C - {ROI}} \right)}{MV} \right) \times D}},$wherein MV is an aggregate market value of the related 529 planaccounts, C is an aggregate value of contributions to the related 529plan accounts, ROI is an aggregate value of return of investment of therelated 529 plan accounts, and D is an amount of the distribution. 2.The method of claim 1, comprising receiving the information from aplurality of sources.
 3. The method of claim 1, comprising receiving asocial security number of an owner.
 4. The method of claim 1, comprisingreceiving a social security number of a beneficiary.
 5. The method ofclaim 1, comprising receiving a starting position for each 529 planaccount.
 6. The method of claim 5, comprising receiving for each 529plan account: a fair market value; a value for life-to-datecontributions; and a value for life-to-date return of investment.
 7. Themethod of claim 1, comprising identifying 529 plan accounts having acommon beneficiary.
 8. The method of claim 1, comprising identifying 529plan accounts having a common owner and beneficiary combination.
 9. Themethod of claim 1, comprising aggregating the information for UGMA/UTMAaccounts separately from the information for non-UGMA/UTMA accounts. 10.The method of claim 9, comprising aggregating the information for 529plan accounts having a common beneficiary.
 11. The method of claim 9,comprising aggregating the information for 529 plan accounts having acommon owner and beneficiary combination.
 12. The method of claim 1,comprising determining a return of investment portion of thedistribution.
 13. The method of claim 1, comprising determining when amaximum limit associated with a 529 plan account beneficiary is reached.14. The method of claim 13, comprising determining when an aggregatemarket value for 529 plan accounts having a common beneficiary reaches amaximum value.
 15. The method of claim 13, comprising determining whenan aggregate total for life-to-date contributions for 529 plan accountshaving a common beneficiary reaches a maximum value.
 16. A system fordetermining an earnings portion of a distribution from a 529 plan, thesystem comprising: a processor in communication with a firstcomputer-readable medium storing information associated with a pluralityof active 529 plan accounts, wherein the processor is responsive toinstructions stored on a second computer-readable medium of the systemto: identify related 529 plan accounts from the plurality of 529 planaccounts; receive information associated with the plurality of 529 planaccounts, including receiving for each 529 plan account: a state planidentification number, an owner identification number, and a beneficiaryidentification number; aggregate the information for related 529 planaccounts; and determine an earnings portion (EP) of a distribution fromat least one of the related 529 plan accounts as:${{EP} = {\left( \frac{{MV} - \left( {C - {ROI}} \right)}{MV} \right) \times D}},$wherein MV is an aggregate market value of the related 529 planaccounts, C is an aggregate value of contributions to the related 529plan accounts, ROI is an aggregate value of return of investment of therelated 529 plan accounts, and D is an amount of the distribution.
 17. Acomputer-readable medium comprising instructions stored thereon, which,when executed by a processor, cause the processor to: identify related529 plan accounts from a plurality of 529 plan accounts; receiveinformation associated with the plurality of 529 plan accounts,including receiving for each 529 plan account: a state planidentification number, an owner identification number, and a beneficiaryidentification number; aggregate the information for related 529 planaccounts; and determine an earnings portion (EP) of a distribution fromat least one of the related 529 plan accounts as:${{EP} = {\left( \frac{{MV} - \left( {C - {ROI}} \right)}{MV} \right) \times D}},$wherein MV is an aggregate market value of the related 529 planaccounts, C is an aggregate value of contributions to the related 529plan accounts, ROI is an aggregate value of return of investment of therelated 529 plan accounts, and D is an amount of the distribution.